Like other contracts, insurance policies are divided into parts, and most of the parts appear under headings or captions. A separate contract term (known as a “titles clause” or a “headings clause”) sometimes specifies that the titles should not affect the interpretation of the policy. But a catchy title can be hard to resist. This week, in Infrassure, Ltd. v. First Mut. Transp. Assurance Co., No. 16-306 (2d Cir., Nov. 16, 2016), the U.S. Court of Appeals for the Second Circuit ruled that a titles clause did not prevent consideration of language in a heading, which the court took to be an “express indication as to the context in which a particular provision is operative.” Because the ruling relied on judgments that are difficult to explain, it potentially opens a new frontier for disputes over contract interpretation.

London Calling

Infrassure was a reinsurance dispute that arose out of Superstorm Sandy. After the storm, New York’s Metropolitan Transportation Authority (which operates the city’s buses, subways and commuter rail lines) submitted a claim under a property insurance policy issued by its captive insurer, First Mutual Transportation Insurance Company. In connection with that policy, First Mutual had purchased more than $1 billion of reinsurance from a group of reinsurers. When First Mutual submitted its claim for the MTA’s losses in Sandy, one of those companies—Infrassure, Ltd.—denied coverage.

Infrassure had agreed to provide coverage to First Mutual under a bilateral Certificate of Facultative Reinsurance. The certificate included an endorsement (Endorsement No. 2), calling for arbitration in London. That endorsement supplemented a clause in the body of the certificate, which provided for arbitration in New York, and which also required that the arbitrators be current or former officers of an insurer or reinsurer.

When First Mutual initiated the London arbitration, Infrassure responded with an action in federal court in New York, seeking a declaration that Endorsement No. 2 did not apply to this dispute—and so that any arbitration should proceed in New York, before a panel of insurance professionals. First Mutual counterclaimed, seeking (i) a declaration that the endorsement applied and (ii) an order compelling arbitration in the UK.

First Mutual and Infrassure are, respectively, American and Swiss corporations. Infrassure based its claim that Endorsement No. 2 was inapplicable on the following language, which appeared in boldface at the top of each page of the endorsement:

LONDON ARBITRATION AND GOVERNING LAW (UK AND BERMUDA INSURERS ONLY)

First Mutual, on the other hand, argued that this language was inoperative, because it appeared only in the title of the endorsement, and because the Certificate contained the following titles clause:

The several titles of the various paragraphs of this Certificate (and endorsements, if any, now or hereinafter attached hereto) are inserted solely for convenience of reference and will not be deemed in any way to limit or affect the provisions to which they relate.

The case turned, therefore, on whether the words “UK and Bermuda Insurers Only” were part of a “title,” within the meaning of the titles clause (the Certificate did not define the word “title”), and, if so, whether that clause could nevertheless be construed in a way that permits consideration of that language. The district court, without delving into those questions, held that “Endorsement No. 2 is inapplicable because, by its explicit language, it only governs disputes between [First Mutual] and ‘UK and Bermuda Insurers.’” The court awarded judgment on behalf of Infrassure, and First Mutual appealed.

Names Will Never Hurt Me

Infrassure responded to the appeal with a number of arguments, including the assertion that the phrase “UK and Bermuda Insurers Only” is “not a title”:

While the Certificate does not define ‘title,’ [the titles clause] indicates that a ‘title’ is text that serves ‘convenience of reference.’ The parenthetical phrase ‘UK and Bermuda Insurers Only’ does not … serve as a reference point … . Rather, the phrase contains substantive instructions concerning the reinsurers to which the [endorsement] appl[ies]—an issue not addressed elsewhere in the provision.”

This argument is hard to square with the language of the titles clause. That provision did not suggest that a “title” is defined or distinguished by the fact that it is used for “convenience of reference.” Rather, it affirmatively stated that “titles”—however defined—should be understood as being used that way in this contract. Infrassure’s contention that the disputed phrase “contains substantive instructions,” therefore, is actually another way of saying that the titles clause should not be enforced, because the language of this particular title is too important to ignore.

Infrassure also made that argument directly. It asserted that the court could give force to the parenthetical language of the title without “limit[ing] or affect[ing]” Endorsement No. 2, in violation of the titles clause:

The district court’s reading of the phrase ‘UK and Bermuda Insurers Only’ does not ‘limit or affect’ the [endorsement,] … [because]the phrase does not concern the interpretation of any portion of the provision. Instead, the phrase clarifies an issue not addressed in the provision: to whom the [endorsement] appl[ies].

The Ruling

While the Court of Appeals affirmed the order of the district court, it is not clear which of Infrassure’s arguments the court accepted. In its opinion, the court declared, without explanation, that the disputed language “is not part of the title itself, though it shares the same line and bolded format.” The court’s analysis, however, appeared to reach the conclusion that a titles clause simply does not apply to every title:

The purpose of the Titles Clause is not to strip away an express indication as to the context in which a particular provision is operative, but to ensure that the text of a provision is not discounted or altered by the words of its heading.

“Our reading … is easily confirmed by consulting other provisions. In some instances, critical clauses would have no meaning at all if the Titles Clause were mechanically applied. For example, Paragraph 14 of the Certificate reads in its entirety:

14. Program Policy Limits
Various as per the attached schedule.

“If we were to apply the Titles Clause to this paragraph in the same way that First Mutual asks us to apply it to Endorsement No. 2, we would be left with the cryptic provision, ‘Various as per the attached schedule.’ The heading ‘Program Policy Limits’ instructs the reader that the phrase ‘Various as per the attached schedule’ refers to program policy limits, as opposed to some other concern of the reinsurance agreement.”

In short, some titles contain information that is just too valuable to pass up. The court’s opinion shared this sentiment with one of the district court cases cited by Infrassure, Small Business Bodyguard Inc. v. House of Moxie, Inc., No. 14–cv–7170 (S.D.N.Y. Mar. 20, 2015), which offered this thought:

[T]he parties did not choose to call Section 11 of their [contract] ‘Zebras’ or ‘Xylophones,’ although those words would have been just as effective in setting off Section 11 from the Section 10 that immediately preceded it; Instead, they gave Section 11 a generally descriptive title. Nothing in [the titles clause] … requires this Court to pretend otherwise.”

Context? Discount?

The Court of Appeals stated that it was issuing its opinion for the benefit of future litigants, because it was interpreting “wording that … has not been construed before, and that is in a contract that may share features with other standard forms and endorsements.” But while the decision makes it clear that titles clauses should not be enforced “mechanically,” it provides little guidance about how to distinguish “mechanical” interpretations from valid ones.

The court stated, for example, that a titles clause serves to “ensure that the text of a provision is not discounted or altered by the words of its heading.” In this case, the court found that consideration of the heading would not have that effect, because the title merely stated the “context” in which Endorsement No. 2 “is operative.” But the endorsement is part of a bilateral contract between an American insurer and a Swiss reinsurer (albeit one of dozens of such contracts in First Mutual’s facultative reinsurance program). Under the court’s reading, therefore, the heading indicates that the endorsement can never be “operative.” It is at least arguable that such an interpretation impermissibly “discounted” the endorsement. In Infrassure, however, the court did not identify the critical factor or consideration that led it to reject that argument.

Furthermore, the court provided no explanation for its underlying claim about the limited objectives of a titles clause. In this case, the clause stated expressly that the parties intended to use their titles “solely for convenience of reference,” and that the titles should not “in any waylimit or affect the provisions to which they relate.” It is something of a stretch to conclude that prescribing the “context in which a particular provision is operative” does not “limit or affect” that provision “in any way.”

Nor is it clear that following “an express indication as to … context” will always be consistent with the parties’ intent. As one commentator has observed, a titles clause is a blunt instrument; parties who use it gamble that the body of their contract will, on the whole, reflect their agreement more accurately than the titles:

[A titles clause] is a simple, imperfect, solution to the problem of poorly-drafted agreements, with headings that conflict with clause language. It is … best used in a pinch when parties don’t have the time, or resources, to craft clear headings and clauses.”

The Bottom Line On That Line At The Top

So what really happened in Infrassure? The key might lie in the court’s unsupported assertion that the disputed parenthetical “is not part of the title itself.” In the end, that is, the court might actually have accepted Infrassure’s argument that language at the top of a page is not a title, if it does more than merely “serve as a reference point.” After all, the phrase “UK and Bermuda Insurers Only” does not look like it was inserted “solely for convenience of reference,” and it appears that the court simply found that fact impossible to ignore.

If that is correct, then the rule of Infrassure might be stated as, “To the extent a heading is intended to provide instructions to the reader, it is not a title.” In effect, the court’s view of what constitutes a proper “title” is the same as the view of Plato’s Hermogenes on the subject of “names”: “there is no name given to anything by nature; all is convention and habit of the users.”

In future cases, though, it is likely that the question of whether a heading provides instructions to the reader will rarely be straightforward. Furthermore, as noted, it is by no means clear that parties will always have intended such instructions to be enforced.